Major producers believe Alaskan gas pipeline plan to make little sense

Although lawmakers and the Bush administration say a proposed Alaskan gas pipeline is critical to US energy security, major producers said the $ 17-bn-US project makes little sense considering highly volatile -- and currently low -- gas prices. At the same time, there remained wide disagreement over what route a pipeline should take.
Alaska officials argue it should follow the Alaska Highway rather than take a northern route mostly through Canada, as proposed by one consortium. With natural gas plummeting to $ 2 per thousand cf in recent weeks from a high of $ 10 last winter, even some leading proponents questioned the economics of a pipeline at a Senate hearing.
Senators expressed little interest in significant subsidies. "This project is not economic regardless of the route selected," declared Joseph Marushack, a vice-president at Phillips Petroleum. His company, along with ExxonMobil and BP America, owns rights to about 35 tcf of gas in the Prudhoe Bay area of Alaska's North Slope.

A recent report from the three producers concluded that a gas pipeline would produce no more than a 10 to 11 % return on equity, uneconomical considering the risk. The producers said they continue to examine the possibility of a pipeline but have no immediate plans to apply for federal permission to build one.
Still, they urged Congress to ease the regulatory process for a pipeline's approval, saying that might "improve the prospects of an economically viable" project. Disagreement remains over what route to take. Alaska officials are adamant that the route be kept in the state as much as possible.
This so-called southern route would take the line along the path of the existing oil pipeline, then along the Alaska Highway and into Canada. Another proposal, the northern route, would go east under the Beaufort Sea, then south through the Mackenzie Delta.

Forrest Hoglund, chairman of Arcticgas Resources, the consortium behind the northern route, said this would cost $ 2 bn less than the Alaskan route andis economically viable at today's gas prices without government subsidies.
Hoglund called the Alaska Highway route a "25-year-old second-best answer." "We need those who would mandate routes to stand down from their efforts, and instead, focus on providing a clear opportunity for expeditious permitting of the most cost-effective route."
Alaska Gov. Tony Knowles, a Democrat, disagreed. He said the northern route faces more environmental challenges, and some technologies of underwater arctic pipeline construction have yet to be proven. Knowles also called for preferential purchasing of Canadian and US steel for the project. And he said financial incentives should be granted for the Alaska Highway route.

In Yellowknife, Northwest Territories Resources Minister Joe Handley said the governor's call for federal financial intervention is a sign of desperation among the Alaskans. "They've got to try everything," said Handley, whose government strongly supports the northern route through the territory. "They realize the only way of swaying the companies would be by massive amounts of subsidies and tax breaks." Handley said his government will not be asking for similar help from Ottawa.
The US senators were in general agreement that it remains important to develop the vast natural gas resources of Alaska's North Slope, or face growing dependence on foreign energy sources.